Hospitals Buying More Doctors' Practices

GREENVILLE, S.C. - Hospitals across the country are buying more physician practices as they prepare to move away from fee-for-service reimbursements to a system that pays for treatments focusing on outcomes and cost containment.

Greenville Health System employs 750 doctors and another 250 nurse practitioners and physician assistants. Bon Secours St. Francis Health System here has about 250 and expects to hire more.

"I didn't want to be bought. I wanted my independence," said Dr. Carolyn Fields, who became a St. Francis employee in June after spending almost 28 years running her own primary care practice, seeing patients, hiring staff and managing payroll. "But it's becoming more and more difficult. And I got tired of all that."

Greenville County Medical Society estimates 70% of its 900 members now work for a hospital.

Though the trend has been gaining steam, some experts say the push may be driving up health-care costs. However, hospitals and other experts say the new way of doing business will lead eventually to smaller cost increases.

Higher rates

Hospitals' move to buy doctors' practices has been growing steadily in the past decade as care increasingly shifted from in-patient hospital care to an outpatient setting. From 2004 to 2011, outpatient services covered by Medicare grew by more than a third, according to the federal Medicare Payment Advisory Commission.

Between 2001 and 2011, the number of physicians and dentists employed by hospitals across the USA grew by more than 40%, according to the American Hospital Association.

MedPac, an independent body financed by Congress that provides advice on Medicare issues, said this push may be driving up costs as services once billed as physician visits increasingly are billed at higher hospital outpatient rates - even if they remain in the same location.

"Compared with rates in physicians' offices, Medicare payment rates for (office) visits are 80% higher and echocardiograms are over 70% higher when billed as outpatient services even after adjusting for differences in packaging," the commissioners wrote in their 2013 Report to Congress on Medicare Payment Policy.

In 2011, that difference translated into $1.5 billion in higher bills for the Medicare program and beneficiaries than if they had been billed as physician office services, MedPAC reported.

Known as a facility fee, the practice has been called a windfall for hospitals, said Alwyn Cassil of the Center for Studying Health System Change, a nonpartisan think tank in Washington.

"It's potentially a huge issue," she said. "But in some markets, they are using the fact that they're not charging facility fees as a marketing tool to attract patients."

Changing landscape

Medicare allows facility fees, which help hospitals maintain their revenue streams in a changing reimbursement environment, said Dr. Angelo Sinopoli, vice president of clinical integration and chief medical officer at Greenville Health System.

"Hospitals are trying to do what they can to support themselves during that transition," he said. "But I think (those fees) will go away in the next year or two. Medicare is already talking about changing that differential so there would be no difference between hospital and office."

MedPAC expressed concern that those higher payments might give hospitals incentive to acquire physician practices, and it recommended equalizing payment rates so "hospitals would not be rewarded purely for changes in corporate structure that do not change patient care."

St. Francis Chief Executive Mark Nantz said his hospital charges facility fees for some outpatient services, such as cancer care. But those services were developed as outpatient departments, and he said he's not aware of facility fees being charged at physician practices the hospital has acquired.

"There might be some short-term financial gain to be gotten, but we didn't think that would put us in a better position," he said. "Also, there could be a backlash of patients if it's more expensive. And at some point, we will compete on price competitiveness."

Another way that hiring doctors and buying their practices could drive up health care costs: Larger institutions have more bargaining clout with insurers.

"The acquisition of physicians in principle would make it easier to integrate those physicians to coordinate care for the patients, and that should have positive impacts on quality. But there's no guarantee that happens," Cassil said.

"When you join hospitals and doctors together, ... it gives you a lot of negotiation clout to get higher payment rates," she said.

Another reason hospitals are employing more doctors is to get their referrals, said Lynn Bailey, a health care consultant in Columbia, S.C. Having the physicians as well as home-health agencies, transportation, rehabilitation, medical equipment and other services makes hospitals the dominant provider in an area.

"Generally speaking, we have not found in U.S. economic history that to be a beneficial relationship for the consumer," she said. "You end up with above-competitive-market pricing."

A new environment

Greenville Health System has been hiring physicians for years, Sinopoli said. But it has no goal in terms of numbers.

"We are looking to hire some (gastroenterologists) ... and a few more neurologists. We are filling in particular needs here and there," he said. "What we are doing ... is trying to right-size it around the idea that we are going to be in a managed-care environment."

Managed care, a more highly controlled payment and provider strategy typified by health-maintenance organizations, was the big idea in the 1980s to control health care costs. But it had little effect on the nation's spiraling medical bills.

Officials at both hospital systems in the Greenville area think that the government, insurers and businesses increasingly want to pay a set payment per person no matter what health services that person uses. Sinopoli said that's what's driving his hospital's decision to hire more doctors, operate other services such as home care and create a network of integrated providers. The result should be a more efficient, less expensive product.

He points to Kaiser Permanente, an integrated managed-care organization in California that has been operating for decades, as an example of such a system. Businesses pay a set fee for their employees to get health care from Kaiser Permanente doctors and other providers. That's kept premium growth down, he said.

But those savings don't happen overnight, Sinopoli said.

"It's not about rationing care or keeping beneficiaries from something they need," St. Francis' Nantz said. "But (it's) about not wasting, and not duplicating, and maybe being more preventive to keep the diabetic out of the hospital."

A different time

Other incentives help reduce costs and improve quality, too, Sinopoli said. For example, hospital deaths have dropped because of efforts to reduce hospital-acquired infections, and that cuts costs. And a push from Medicare to not pay for certain readmissions led to significant declines in those rates.

But attempts have been made before to control medical spending, and the nation's health-care bill is $2.9 trillion now.

Is the new approach any more likely to work?

"Now the economy is worse and driving it more," Sinopoli said. "The continued rise in health-care costs is a bigger and bigger line item for employers and government. Things are different now than in the past. The economic pressure to do this is greater than it's ever been."

The nation is struggling to figure out whether more competition or more collaboration will improve quality and control costs, Bailey said, though consolidation tends to result in more expensive care and less choice for consumers.

"For a reform that is looking at being patient centered, it's missing on this one," she said.

Fields, who has been a doctor for almost three decades, said she has seen a lot of ideas come and go without reducing costs. Some have increased costs.

She has found herself longing for the days when she first began to practice.

"At that time, there weren't as many unpaid things you had to do in the practice, and reimbursement was a little better, Fields said. "I had one fee schedule. My standard office visit was $18.

"I didn't have to call a clerk at an insurance company and get permission to send a patient for a test or to see a specialist or prescribe a medication. I didn't have to file claims. I gave the form to the patients and they sent it in," she said. "There's a lot to be said for that kind of freedom."

Being part of the hospital relieves Fields of some of those hassles, gives her support services she didn't have before and enables her to offer her employees better benefits, she said. She followed colleagues who also sold their practices and liked the results.